A stock is expected to pay a dividend of $1.0 one year from now, $1.7 two...
A stock is expected to pay a dividend of $1.0 one year from now, $1.7 two years from now, and $2.5 three years from now. The growth rate in dividends after that point is expected to be 8% annually. The required return on the stock is 15%. The estimated price per share of the stock six years from now should be $_________.
Homework Answers
| Year | Dividend |
| 1 | 1 |
| 2 | 1.7 |
| 3 | 2.5 |
| 4 | 2.7 |
| 5 | 2.916 |
| 6 | 3.14928 |
| 7 | 3.4012224 |
Stock after 6 years = Dividend in year 7 / (Cost of capital - growth rate)
= 3.4012224 / (15% - 8%)
= 48.59
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